Q4 2023 Veeco Instruments Inc Earnings Call
Participants
Anthony Pappone; IR Contact Officer; Veeco Instruments Inc
William Miller; Chief Executive Officer, Director; Veeco Instruments Inc
John Kiernan; Chief Financial Officer, Senior Vice President; Veeco Instruments Inc
Rick Schafer; Analyst; Oppenheimer & Co., Inc.
Brian Lee; Analyst; Goldman Sachs
Charles Shi; Analyst; Needham and Company
Mark Miller; Analyst; Benchmark Company
David Duley; Analyst; Steelhead Securities, LLC
Gus Richard; Analyst; Northland Capital Markets
Thomas O'Malley; Analyst; Barclays
Presentation
Operator
Greetings, and welcome to the Veeco's full-year 2023 earnings call. (Operator Instructions)
Reminder, this conference is being recorded. My pleasure to introduce your host, Anthony Pappone, Head of Investor Relations. Thank you, sir.
Anthony Pappone
Thank you, and good afternoon, everyone. Joining me on the call today are Bill Miller, Veeco's Chief Executive Officer, and John Kiernan, our Chief Financial Officer. Today's earnings release and slide presentation to accompany today's webcast is available on the Veeco website to the extent that this call discusses expectations for future revenues, future earnings, market conditions or otherwise make statements about the future. These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are discussed in detail in our Form 10 K annual report and other SEC filings. Veeco does not undertake any obligation to update any forward-looking statements, including those made on this call to reflect future events or circumstances after the date of such statements.
Please note, unless otherwise noted, management will address non-GAAP financial results. We encourage you to refer to our reconciliation between GAAP and non-GAAP results, which you can find in our press release and at the end of the earnings presentation.
With that, I will turn the call over to our CEO, Bill Miller.
William Miller
Thank you, Anthony, 2023 was a successful year for Veeco. I'm proud to say we grew the business, improved profitability and most importantly, laid the groundwork for future growth by advancing our product roadmaps.
Veeco reached two strategic milestones during the year. First, we launched our next-generation nanosecond annealing solution. And second, we launched our ion beam deposition system for low resistance metals. Each of these technologies enables our customers to fabricate devices with higher performance and lower power consumption.
Revenue from our semiconductor business reached a record in 2023, outperforming WFE growth for the third consecutive year. Our strong results included multiple laser annealing systems for advanced DRAM devices despite industry-wide CapEx reductions as well as our first HVM laser annealing systems to our third leading logic customer, while investing for growth is essential to our strategy or equally focused on growing profitability. Our team's execution allowed us to grow non-GAAP gross margin, operating income and EPS Lastly, we continued to allocate capital towards organic growth initiatives. In the second half of 2023, we shipped multiple evaluation systems of key technologies and expect to further the evaluation program in 2024. We believe these investments will lead to significant served available market expansion.
Switching gears to our full year financial highlights. Veeco reported another year of top and bottom line growth with results coming in near or above the high end of our updated 2023 guidance. Revenue totaled $666 million, led by semiconductor revenue which increased 12% year over year. Gross margin improved to 43.5% in 2023 from approximately 42% in the prior year. And as a result, non-GAAP operating income grew 10% to $110 million and diluted non-GAAP EPS increased to $1.69.
Now for a look at our Q4 highlights, Veeco reported another quarter of strong top and bottom line results. Revenue totaled $174 million. Gross margin improved sequentially to 45%, driving non-GAAP operating income to $32 million and non-GAAP EPS totaled $0.51. Our solid financial results were primarily driven by the semiconductor market, led by our laser annealing systems from semiconductor revenue, increasing 17% sequentially.
I'll now provide an update on our markets and review several exciting opportunities. Beginning with the semiconductor market, we're growing our served available market by investing in advanced node logic and memory applications and winning new customers because LSA technology is gaining share. Customers advanced nodes as new device architectures and shrinking geometries require precise annealing to increase performance. Veeco's technology advantages include a lower thermal budget, high dopant activation and pattern insensitivity to annealing in 2023. We've also experienced increased demand from mature node customers as they've achieved performance benefits from adopting laser annealing technology. As we look ahead, there are a number of growth opportunities for our laser annealing business, including winning new memory customers, driving additional applications in logic and introducing our nanosecond annealing technology.
Moving to our position in the EUV ecosystem, our ion beam technology is utilized to produce defect-free mask blanks. We continue to work closely with industry leaders as we advance our technology to enable their roadmaps. Looking to 2024, we expect our semiconductor revenue to be up 5% to 10%.
Moving to the compound semiconductor market, Veeco is focused on several long-term opportunities within Power, electronics and photonics. We continue to advance our silicon carbide technology remain highly engaged with Tier one customers and expect to ship two evaluation systems this year. We believe our unique system design and extensive go-to-market infrastructure position us well to capture share in this high-growth market.
For GaN power, we're working with Tier one power device customers and positioning ourselves at 200 millimeter and 300 millimeter wafer sizes for GaN on silicon solutions, we expect to ship a 300 millimeter evaluation system to a power device customer in 2024. Based on current visibility in the markets we serve, we expect our compound semiconductor business to be up 5% to 10% in 2024.
Lastly, looking at the data storage market, Veeco provides ion beam equipment to manufacture thin film magnetic heads for hard disk drives. While we're well positioned to take advantage of long-term growth in the cloud. We're focused on porting ion beam technology from data storage to the front end semiconductor market. Based on the scheduled ship dates of our backlog. We expect our data storage business to be flat to up 10% in 2024.
Moving now to artificial intelligence and the role Veeco plays in the AI chip manufacturing process growth of AI is having a profound impact on leading edge product roadmaps, requiring the most advanced technologies to manufacture higher performance AI chips, our laser annealing systems for transistor formation and IBD. systems for EUV mask blanks are established as production tool of record for GPUs and HBM D-Ram. Equally as important, we see future opportunities for a nanosecond annealing and Ion Beam Deposition solutions for these same applications.
I'd now like to take a deeper dive into two of our largest opportunities in the semiconductor market. Our nanosecond annealing technology offers a substantial opportunity to expand our served available market to a broad range of new advanced node applications. Due to our unique laser and architecture, our system can achieve a lower thermal budget and short dwell time versus today's most advanced annealing solutions. This results in a shallow and Neil that can impact only tens to hundreds of nanometers into the wafer, which may be ideal for next-generation steps such as backside power delivery and contact anneal for advanced nodes and 3D devices. Our system has the capability to change the structure and properties of the device, enabling steps like board removal rate crystallization and green growth. In Q4, we shipped our first two NSA evaluation systems to two leading logic customers. As we look ahead, we see potential for initial high-volume manufacturing orders in 2025.
Turning now to Ion Beam Deposition for 300 millimeter front end semiconductor applications, Veeco as the industry leader in ion beam technology, which has been honed over decades. This core technology can also solve our customers' high-value challenges in advanced semiconductor wafer level manufacturing as device geometries continue to shrink low resistance metals are important to maintaining device performance. Traditional deposition technologies like PVD are struggling to meet performance criteria based on Tier one customer data, our Ion Beam deposited, tungsten and ruthenium films are demonstrating approximately 20% lower resistance compared to traditional PVD for D-Ram. This enables tungsten bit line scaling while maintaining electrical performance of the device for logic, ruthenium based metallization can enable new integration schemes at future nodes. In Q4, we shipped our first two IBD. 300 evaluation systems to two DRAM customers. As we look ahead, we see potential for initial high-volume manufacturing orders in 2025.
With that, I'll turn it over to John for a financial update.
John Kiernan
Thanks to Turning first to our revenue for the year, revenue came in at $666 million, increasing 3% over the prior year. And revenue from our semiconductor business reached $413 million, increasing 12% from the prior year and comprising 62% of total revenue growth in the semiconductor market was primarily led by our laser annealing systems. Compound Semiconductor revenue came in at $87 million. It declined from the prior year, representing 13% of total revenue. The year-over-year decline primarily resulted from a decrease in wet processing systems for 5G RF devices due to softness in the handset market data storage revenue totaled $88 million, flat to the prior year, comprising 13% of total revenue and scientific and other revenue was $78 million, an increase of 15%, making up 12% of revenue.
Moving to revenue by region, the China region made up 33% of revenue, an increase from 19% in the prior year. Driven by mature node semiconductor sales. Our Asia Pacific region, excluding China, made up 31% of revenue with the largest contribution coming from semiconductor customers. United States made up 24% of total revenue led by data storage and semiconductor customers. And lastly, Amea was 12% of revenue for the year.
Now looking at our full year 2023 non-GAAP operating results, we achieved gross margin of 43.5%, an increase from 42% in the prior year. Gross margin improvement continues as a focus with actions targeted to achieving our 45% target model and the future operating expenses increased 5% to $181 million as we increased R&D investments, operating income increased 10% from the prior year to $110 million. And lastly, net income increased to $98 million with tax expense of $11 million, yielding an effective tax rate of 10%. Diluted EPS increased to $1.69 for the year on $61 million shares. I'll now provide selected GAAP full year data amortization expense was $8 million. Our equity comp expense was $29 million, depreciation, $16 million, and net interest expense was approximately $1 million. Gaap net loss of $30 million included a $97 million extinguishment loss from refinancing of substantial portion of our convertible notes.
Turning to Q4, revenue by market and geography, revenue for the quarter was $174 million near the high end of our guidance range. Semiconductor revenue increased sequentially by 17% to $115 million, comprising 66% of total revenue. The increase in revenue was led by laser annealing systems. Compound Semiconductor revenue came in at 10%. Data storage contributed 11%, and scientific and other made up 13%.
Now turning to quarterly revenue by region. The percentage of revenue from China increased to 38% in Q4 due to mature nodes. Semiconductor sales revenue from our Asia Pacific region, excluding China, made up 34% of revenue led by sales to semiconductor customers. The United States totaled 22% of revenue, primarily driven by data storage and semiconductor customers. And lastly of the it was 6% of revenue.
Switching gears to our non-GAAP quarterly results, gross margin came in at approximately 45%, a sequential increase from 44%. Operating expenses for the quarter totaled $47 million, up $1 million from Q3. Tax expense for the quarter was approximately $3 million, a slight increase from the prior quarter, resulting in an 8% effective tax rate. Lastly, net income came in at $30 million and diluted EPS was $0.51 on $60 million shares.
Now moving to the balance sheet and cash flow highlights, we ended the quarter with cash and short-term investments of $306 million, a sequential increase of 19 million. The increase was primarily driven by 29 million of cash flow from operations, partially offset by CapEx.
From a working capital perspective, our accounts receivable declined by $19 million to 103 million, while days sales outstanding for the quarter decreasing to 53. Inventory declined from the prior quarter by 14 million to 238 million. While days of inventory came in at two 31. Accounts payable declined by 21 million to 42 million, while days payable declined to 41. Long-term debt on the balance sheet was recorded at 275 million, representing the carrying value of our 282 million of convertible notes. And finally, our CapEx during Q4 totaled $11 million, bringing total CapEx for the year to 28 million.
Now turning to Q1 non-GAAP guidance. Q1 revenue is expected to be between 160 and $180 million, with gross margin between 43% and 44%. We expect OpEx between 46 and 48 million, net income between 21 and 27 million and diluted EPS between 36 and $0.46 on 60 million shares. And now for some additional color beyond Q1, based on our current visibility, we are reiterating our 2024 revenue outlook between 680,000,740 million. We expect revenue in the second half of the year to exceed revenue in the first half based upon timing of schedule shipments from our backlog as well as forecasted orders. And we continue to forecast diluted non-GAAP EPS for the full year to be between $1.60 and $1.90 per share. With that I'll now turn the call over to the operator to open up Q&A.
Question and Answer Session
Operator
We will now be conducting a question-and-answer session. (Operator Instructions)
Rick Schafer with Oppenheimer & Co.
Rick Schafer
Thanks, guys, for letting me on And congratulations on another solid quarter. Two questions, if I may, if I may. The first one bill, on the new you you guys just highlighted, I mean a tight growth drivers. I don't know if you could give a sense of how backlog compares this year, obviously guiding for growth that I know, you talked a lot about 500 million I think, around this time last year for 23. And I was just curious how that compares for 24 weeks.
John Kiernan
Yes, Rick, this is John, and thanks for the question. We haven't published our 10 K yet, so we haven't published a backlog number yet for the full year 2023. We expect to publish that in a few days a year in the normal course. I would say that as we look into 2024 and in our guide, I would say that we continue to see strength in semiconductor. The largest portion of the backlog comes from the semiconductor business. Here, we are expecting our semi business to be up about 5% to 10% in 2024 compared to 2023. And of course, when we gave our outlook for the full year 2024, we consider the backlog in hand at that point in time as well as forecasted orders.
Rick Schafer
Okay.
Thanks, John. And if I could follow up, just a quick one on China. The red contribution there was up precisely I think, year over year 23. And so I know you give a little more color around what sort of order velocity seemed like it kind of peaked in the fourth quarter. So just curious if you could comment on order velocity there, outlook for that region this year? And maybe if you could like a little nuanced, but a sense of how much demand do you think is sort of pull-ins, geopolitical stuff out there versus what normal demand kind of kind of trends would look like there?
Thanks.
John Kiernan
Okay, Rick. Yes, thanks for the question. And if I miss any part of that, Bill could help me or can you please please ask because you had a couple of pieces to that question there. So for 2023, our revenue was about 33% of the Company's revenue came from China. That's versus 19% in the in the prior year. And I would say the largest driver of the increase in business was from mature node semiconductor and really coming from the laser annealing business there. So we see a number, you know, of customers advance of investing in mature node. I would say one of the things that we saw there as well, right? Typically, LSA was adopted at 28 nanometer node. We've also been seeing advantages or customers have been seeing advantages and even adopting at a 40 nanometer node. So that's been helpful to the business there. As we as we look forward, our activity with customers is still very strong. We're seeing customers continue to advance excuse me, to invest in new in new projects and activity with customers right now continues to be strong as I look at the whole year of 2024. And yes, I think our business in China will come in somewhere around 30% of revenue give or take. We've got really good visibility for the first half of the year, but there's no sort of indication as we sit right now.
William Miller
Any significant change in the customers' patterns at this point, I guess I'll just add, Rick, that we are seeing in that several planning in the second half to have a little bit more volume from the leading edge. So I would think maybe that mix might shift a little more towards the leading edge from the lagging edge in China, but we'll have to kind of wait and see how that develops.
Rick Schafer
Understood. Thank you.
Guys.
William Miller
Thanks, Rick.
Operator
Brian Lee, Goldman Sachs.
Brian Lee
Hey, guys, good afternoon and sorry for that. I was on mute. Can you hear me?
William Miller
Yes.
Good morning, good afternoon.
Brian Lee
Thanks for Good afternoon. Thanks for taking the questions. Kudos on the nice execution. I guess, um, can you talk a little bit about things? I had one housekeeping question. Just to begin with, I thought there were some reports out there. You guys had talked about maybe 10% growth in semiconductor for 24. You're officially saying five dependent? And was there a change or maybe we misinterpreted the initial comments you made in January now?
William Miller
There's no change in our outlook.
The guide that we gave out at the conference in January 5% to 10%.
Brian Lee
Okay.
Firstly, I'm just making sure we had the right notes and I appreciate that. And then on on on the compound semis opportunity, I know you called out some GaN on silicon specifically. Any presumably there's some SIC. embedded in that opportunity as well. Can you kind of talk about some where you sort of have eval tools out in 24, maybe the time line for success? And then when you might be thinking about high-volume manufacturing orders and does that differ from the different types of opportunities you have across your GaN on silicon versus ASIC versus anything else?
William Miller
Thank you, Brian.
We compound semi this year and 24 is going to be a year of investment for evaluations and in power electronics, we're actively working with a number of Tier one customers in silicon carbide and our planning to place two evaluation systems in the field in 2024. And also on GaN on silicon, we have an opportunity to place a 300 millimeter system at a Tier one customer for GaN on silicon opportunities and then the fourth evaluation system we're planning is actually in micro-LED probably in the second half of 24. So we have a fair amount of new products we're planning to put into the field in 24.
Brian Lee
That's great. And I know it's going to depend on how the volume process works and that can be customer dependent and specific. But any kind of visibility around typical time line you would you would expect and is there a view you didn't call out specifically for the for this category, but high-volume manufacturing orders in 25. Is that your expectation across any of those four opportunities you just called out?
William Miller
Yes, I would say, Brian, that in the front end semi market typically in evaluation can be 12 plus months. And compound semis are typically a bit shorter, maybe six months, six to 12 months. And so I would expect, as you said, to have assuming success were successful having HVM orders late 24 and into 25.
Brian Lee
Okay.
Fair enough. And last one for me and I'll pass it on. Can you talked a lot about the semiconductor opportunity and the good growth you've been seeing there? And specifically, I guess, advanced packaging, can you talk to a little bit of what you're seeing in that market? What the outlook there is over the course of 24 and where you might be having some growth opportunities there as well? Thank you, guys.
William Miller
Yes, we are seeing some exciting growth opportunities in 24 in advanced packaging, particularly in high-bandwidth memory applications. We sell wet processing equipment on before the HBM memory stack. And so that is driving some growth for us over 2023.
Yes, BRIAN.
Operator
Charles Shi, Needham.
Charles Shi
Hey, guys, good afternoon, Bill.
John, I'm wondering if you can give us a little bit of a high-level breakdown of your compound semi business, which you expect to grow by, I think, 5% to 10% this year?
Yes, I think, yes, you said it's a power electronics and photonics driving the growth. But I think your business more than these two end markets is IS. communication. I don't know how much of the commodity LED lighting is still there. Can you kind of unpack a little bit.
Yes, there and specifically, right, this is a two-part question. The photonics side, I think you didn't mention too much on the Photonics side in your prepared remarks your focus has was more on the gas and the silicon carbide. But photonic side, what do you see right now, especially, let's say, data communication side? There seems to be some activities, some optimism about more of the big so more of the Yamaha type of devices that well, how would it be? Are you a beneficiary of that side of that the end market growth?
William Miller
Thank you.
Sure, Charles, I would say trying to unpack your question a little bit on Veeco has almost zero exposure to the commoditized LED portion of the market at this time. And what we are seeing in that, that growth is we are seeing opportunities in Photonics as well as in silicon carbide and GaN power, in particular, with our wet processing equipment driving a fair amount of business for us. The one area we haven't seen much of growth yet is really in kind of the five GRF. area kind of for filters and power amplifiers that have driven our business. In the past, we've that business has been soft and remain soft, even though with some numbers are starting to improve. We haven't really seen an uptick there in our business as well.
Charles Shi
Got it. I'll maybe let me ask you a little bit more about the gross margin guidance for the next quarter. Obviously, Q4, you guys did deliver very strong gross margin performance, but the guidance did seem to indicate a some some level of margin compression into the Q1 is that the just out of conservatism or do you see anything there leading to a lower margins than mix or something or something else?
John Kiernan
Yes, Charles, I'll take that.
Thank you for the for the question, I would say that typically we do see quarter-to-quarter variations in gross margin from one quarter to the other based upon a number of factors, I would say that for 2023. Obviously, as the year progressed, our margin profile improved and we ended the year for the full year at 43.5% gross margin at the midpoint of our guide. That's what we're guiding for in in Q1. And granted, that's not of 45% that we that we hit in Q3 and Q4, which did benefit from higher volume and did benefit from a favorable mix there. I think as I look out to 2020 for full year gross margin in a range similar, that's our call right now, similar to 2023, one of the things is worth pointing out. We are making a significant investment with this evaluation program that we just talked about in the prepared remarks and that Tom investments we're making a head of revenue is about 50 to 75 basis points in 2024. So kind of guiding to a similar level in 2024, 2023. We are making margin improvements in other areas, but we are turning around and reinvesting that ahead of growth ahead of revenue in our evaluation program.
Charles Shi
Thanks, guys.
Thank you, Charles.
Operator
Mark Miller, Benchmark.
Mark Miller
Please, I'm congratulating him on a good execution. Are you seeing any opportunities for your ion beam deposition equipment in multilayered like mirrors or multi or optical components.
And while we we don't see that directly where we see opportunities in ion beam deposition is obviously in EUV mask blank business. We provide the deposition equipment for those zero defect mask blanks. And as you know, Mark, I'll sign a lot of Ion Beam equipment into the hard disk drive area. And we actually now are putting new valve systems in the front end semiconductor space, 300 millimeter systems for low resistance of mineralizations. We do have some level of business that does provide of band pass filters, optical filters on it. We're using Ion Beam Deposition, but it's on it's probably about 20 in the steady $20 million business that range I'd like to take a little deeper dive into your backbone.
If you can comment to the estimates in terms of your backlog, how it's composed relative to memory logic, advanced packaging and also AI type applications?
Yes.
John Kiernan
So Mark, thanks for the question. We have not yet published our 10 K where we'll publish our backlog and you have typically we don't give that level of detail in the backlog. But what I'll say is this still the semi business is over 60% of our business for the year. That's sort of the driving behind our backlog as well. So the larger components of our backlog going into 2024 will come from the semiconductor market.
Mark Miller
Thank you.
William Miller
Thanks, Bart.
John Kiernan
Thanks, Mark.
Operator
David Duley, Steelhead Securities.
David Duley
Yes, good evening. I was wondering as far as your ion beam deposition tools from the D-Ram guys, what sort of the performance improvement is significant to them as far as you talked about, a 20% performance improvement. But what's significant to the customer as far as in high-volume manufacturing, if it's a very thoughtful question, Dave.
William Miller
I would say that's a substantial improvement in performance. I think the traditional technology has been plateaued for a number of nodes and the industry is contemplating some major changes if not moving to ion beam deposition. And so what we're routinely demonstrating is that we can see a 20% or more improvement in the resistance of the film, which has a direct impact, too, the speed and the reduction of losses in these resistant lines these bit lines. So the customers are very excited about it. And on the evaluations are the tools are under installation and proceeding quite well.
David Duley
And so 20% is obviously significantly higher than the threshold. It would take to get the customer to switch from one technology to the other?
William Miller
Yes.
Yes, I think it's it's a it's a very big deal to the customers. It's a when we first, we've been working with them now for a few years of doing demos. And at first, the customers almost didn't believe our numbers actually until we had to send them a lot of problems for them to characterize and realize that it really is that significant of an improvement. And what we can do is we can actually deposit preferential a grain structure has large green structures and on deposit only the lowest resistance portions of the of that material. And so it really is substantially substantially different now than the industry has ever seen.
David Duley
And did did your recent wins in the high-bandwidth memory area with one of the major producers help pave the way for these evaluation systems.
William Miller
And and they're really not related.
We've had success with laser annealing and I guess you could say them that obviously having a performed in laser annealing doesn't hurt when we're trying to introduce a new technology. So that way it's a positive, but the groups are really different different groups of people within the same the same memory infrastructure. So but it's obviously good to have our name known more broadly in the D-Ram space.
David Duley
Okay. Final one for me. Is I think you've talked about having one customer and high-bandwidth memory that's using your LSA tool and falling production or you're starting to see activity from the other two guys who are, I guess, further behind, but I think I just heard to hear their names mentioned on other conference calls regarding starting to purchase tools and wrap up.
Yes, we are actually actively demoing them our laser annealing system with those two customers. And our plan is to have at least one evaluation system out in 24, probably in the second half or the end of 24 to support their their plans.
Thank you.
William Miller
Thank you, Dave.
Operator
Gus Richard, Northland Capital.
Gus Richard
Yes, thanks for taking the question.
Nice, nice quarter. I just want to make sure I count right. There are eight email systems going out this year. Is that the right number?
William Miller
Let me let me look at this, we have four going out in compound semi, two in silicon carbide, our one in GaN on silicon, 300 millimeter and one in micro-LED. And we have a laser annealing tool I just spoke about for on core D-RAM memory going out to us a second major memory player. And we in the fourth quarter, we shipped four evaluation systems two Ion Beam Deposition systems for memory and two nanosecond annealing systems for logic advanced logic. So that and up to five five new tools plus for evaluation systems in semi.
Gus Richard
Got it.
Got it.
Can you handicap for us on which ones do you think are most likely to result in volume production orders? And if you could just kind of rank rank through them, that would be helpful.
William Miller
I would say we've actually had some very good success turning our EVA systems A. into revenue and B with follow on a production, I would say and in the annealing space, we already have a very strong presence in the leading edge logic players, and we're penetrating in memory. So our next-generation tool, the nanosecond annealing tool is an extension of that product and opens up new opportunities. So I would say our customers are familiar generally with laser annealing. And so we feel pretty positive about turning that into business. And then I would say the second one in semi is the ion beam deposition system where we just spoke about the 20% reduction in resistivity of metals, which is a really big deal in the D-Ram EBIT line. That being said, Gus, I would say this is potentially the fourth technology going into semiconductor and there's going to be it's probably going to take a little more time to become adopted on. So I would say that that's probably a little longer time than the nanosecond annealing process. What we're planning for and in the compound semi space, the pull for the GaN on silicon tools is pretty strong with a with a Tier one customer who has some good ramp plans in 25 and 26 and silicon carbide. We are engaging with the Tier one players and trying to gain market share in that spot. And I would say the one that might be a little farther out is the micro-LED opportunity where we keep seeing that the market is potentially large and it seems to be moving kind of rolling delays to the moving to the right, if you will. So that probably is a little more riskier really from a market timing standpoint.
Got it.
Gus Richard
And then just moving on to some other opportunities. You haven't touched on, I believe it was last quarter. You guys shipped a IBD system for pellicle application. I was wondering, is there any follow-on interest in that application or any other customers.
William Miller
We did not ship it, we booked it, but we're going to ship that this year and some yes, the customer may have demand for a follow-on tube, maybe for revenue in 2025.
Got it.
Gus Richard
Got it. Kind of Thanks for clarifying that. And then I think you announced either an order for a shipment of a molecular beam epitaxy for quantum computing. Can you just talk a little bit about that particular application and maybe the opportunity over the next couple of years?
William Miller
Yes. We sold a tool in our scientific segment to ARM for a research application to make the best performing Cubix for quantum computing. And MBE. is a is a great R&D tool and that the customers can deposit many different materials on the periodic table and can be very high purity and very high performing films. And so we just recently announced that we have we shipped one in the fourth quarter. And we actually have it's a pretty large system that will be two systems actually what I think is scheduled to ship at the end of 24 and maybe one in early 2025 for a similar type research application. And quantum computing is really very much in the research phase, and it's probably not going to be any volume revenue for another five and five or so years, I would say it's really a kind of path finding activity of multiple coring.
Gus Richard
The Heidelberg Quadrem is always uncertain on Godiva businesses. Thanks so much. That's it for me.
Anthony Pappone
Thanks, Gus.
Operator
Thomas O'Malley, Barclays.
Thomas O'Malley
Hi, this is Will Eddie on for Tom.
My first question is about the sequentials by segment into March, what's driving the quarter-over-quarter decline bottom to compounds, Compound Semi?
John Kiernan
So I'll take that.
So yes, we guided the midpoint of our guide 170 million for Q1, and we just finished the quarter with 174 million, so down about 2%. If you go to the midpoint of our guide the high end of our guidance at 180 million. If I look at that segmentation by market, we're expecting semi conductor to be down slightly in the quarter. I would remind that Q4 was 115 million and that was a record for us during the during the quarter. So still at a high at a high level. There maybe around 100, 5 million number. We are looking for a bit of a rebound in compound semi, $25 million plus or minus there some for shipping a couple of more systems. And we see some strength in Photonics of applications there.
On data storage, it's about a one system difference, but about 25 million number coming off a $19 million number, but it's only one system difference there. And then we see quite a sizable falloff in the scientific number in Q. one coming in at about 15 million or so and I would say that as Bill just mentioned, we had a very large research tool that went out for this quantum computing. So we had a quite a sizable revenue number in Q2, Q4. And that's the biggest driver and a difference not having one of those bigger tools in the Q1 number.
Thomas O'Malley
Awesome. Thanks so much.
My next question is about your data storage business with the commercial introduction of hammer this quarter and the ramp of such, how has this impacted your outlook in your view of this business?
William Miller
We think the adoption of hammer has been a long time coming and be a healthy, a healthy transition for the data storage industry. We think this long term will give us opportunities in that the the hedges themselves will become more complex and there will be more deposition and etch steps, which would benefit Veeco. We the data storage business is a great business for us. It's a we've been in it for decades, and we have a very strong position in long-term partnerships with our customers. What we see, though, is really the exciting long term growth is really driven by the ability to support this kind of core ion beam technology from data storage into into semi. And so that's really where a lot of the R&D and a lot of focus of the email programs that we just spoke about are really coming out of the ion beam technology originally started with data storage.
Awesome.
Thomas O'Malley
Thank you.
Operator
Yes, it looks like there are no further questions at this time. So I would now like to turn the floor back over to Bill.
William Miller
Thank you. I do want to thank our customers and shareholders, along with our Veeco team for their continued support as we execute our growth strategy. Have a great evening.
Bye.
Operator
Thanks, please today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
